Brookfield Infrastructure Partners L.P.'s Best Moves in 2016

By Matthew DiLallo Markets Fool.com

Image source: Getty Images.

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Brookfield Infrastructure Partners (NYSE: BIP) has been busy in 2016. The company announced a series of transactions which will provide it with growing streams of cash flow for years to come. These deals enabled the company to increase its distribution by 11% this year while putting it on pace for as much as a 9% increase next year. Here's a look back at the moves fueling this healthy income growth for investors.

Finding common ground

In 2015 Brookfield Infrastructure Partners set its sights on acquiring Australian port and rail company Asciano to bolster its global container platform and rail logistics business. It took some work, but the company finally sealed a deal with Asciano in August of that year. However, regulatory concerns and a rival offer nearly derailed that deal and forced Brookfield to get creative.

That creativity led to a new agreement to acquire Asciano this past March, where Brookfield joined a consortium of partners, including the rival bidder. While the deal would result in Brookfield Infrastructure Partners controlling a smaller stake than it initially hoped, it still ended up with a meaningful stake in the business, which helped drive a 9% year-over-year increase in earnings from its transportation segment last quarter. The company's ability to work together with a rival bidder led to a win-win situation for all involved and ensured that Brookfield did not walk away completely empty-handed.

Taking advantage of the situation

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Brookfield has a history of capitalizing on periods of market dislocation to acquire exceptional assets that wouldn't have otherwise been available. That certainly describes its recently announced transaction to acquire a stake in a Brazilian natural gas transmission utility from oil giant Petrobras (NYSE: PBR). Due to persistently weak oil prices and a political corruption scandal, Petrobras found itself in serious financial trouble due to its massive debt load. To address the problem, the company has started selling off assets, including a 90% stake in a natural gas transmission business in the southeastern portion of Brazil.

Because of the dislocation in the Brazilian market, Brookfield Infrastructure Partners, along with institutional clients of its parent company Brookfield Asset Management (NYSE: BAM), were able to swoop in and agree to acquire a controlling stake in this business for $5.2 billion. It is a premier asset, backed by long-term, fixed-price agreements that provide stable cash flow and wouldn't likely have come available if it was not for Petrobras' financial situation. Brookfield Infrastructure intends to invest up to $1.2 billion to acquire a 28% stake, which gives it a sizable portion future cash flows. The company expects the deal to close by the end of this year, or early next year, which would set the stage for a strong 2017.

Image source: Getty Images.

Going back for another round

Brookfield took advantage of a second opportunity to invest capital into Brazil amid its turmoil by turning in the winning bid to build a portfolio of greenfield electric transmission lines. These lines will operate under long-term contracts, which will provide stable cash flow once the company completes these projects. The company currently expects to invest $300 million in developing these lines over the next five years, with construction already under way. Also, the company is working on the acquisitions of several networks of operating electricity transmission lines. These moves are part of the company's efforts to build a meaningful electric transmission business in Brazil over the next few years.

These recent transactions mark Brookfield Infrastructure Partners reentry into Brazil's electricity transmission sector for the third time. Its parent company Brookfield Asset Management was one of the early investors in establishing many of the country's electricity concessions years ago. Meanwhile, Brookfield Infrastructure owned a stake in a Brazilian transmission business from 2006 to 2009. It chose to monetize that stake as part of its capital recycling efforts to sell what was a mature low-growth asset for an excellent value, realizing a 32% internal rate of return in the process. Given its success in the sector, the company is excited about the opportunities in front of it to create value for investors from the space once again.

Investor takeaway

Brookfield Infrastructure Partners made several smart moves this year to expand its infrastructure portfolio. Instead of outbidding a rival on an acquisition, the company worked with that bidder to find a win-win solution. Meanwhile, it took advantage of the shortage of bidders in Brazil due to its economic and political turmoil to acquire assets that wouldn't have been available under normal market conditions. These moves position the company to earn healthy returns from these assets for years to come.

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Matt DiLallo owns shares of Brookfield Asset Management and Brookfield Infrastructure Partners. The Motley Fool recommends Brookfield Infrastructure Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.